Obama Slams Lenders and Colleges

President says eliminating guaranteed loan program is essential to helping students afford college -- but warns that tuition increases must slow.
April 27, 2009

With Congress poised to give the White House a smoother path to push its plan to end the lender-based student loan program, President Obama warned Friday that he was girding up for a fight with banks and their "army of lobbyists."

But the president didn't limit his tough talk to the lenders, challenging college presidents to "control spiraling costs" and "put affordability front and center as they chart a path forward."

Obama's 2010 budget proposal in February included an aggressive plan to make all new federal student loans out of Federal Direct Student Loan Program, using tens of billions of dollars in savings from eliminating the competing Family Federal Education Loan Program to ensure a stable and steadily growing stream of funding for the Pell Grant Program, the chief source of federal need-based financial aid. The administration was banking on the fact that while many colleges use and support the lender-based guaranteed student loan program, the prospect of a Pell entitlement, which they have long coveted, would outweigh their reservations.

A letter last week in which most of the major higher education associations cautiously backed the Obama plan suggested that the administration's calculus was accurate.

The student loan industry, however, has in recent weeks turned up its opposition to the plan, and it has especially objected to the administration's push for Congress to use a controversial parliamentary budget procedure, known as reconciliation, to allow lawmakers to make major policy changes with far fewer opportunities for dissent or amendment. Late Thursday, Democratic leaders in the Senate and the House reportedly agreed that their compromise budget resolution would clear the way for using budget reconciliation to pursue the administration's proposals for both the student loan programs and for health care.

At a White House event Friday that featured a student from the University of Maryland and her mother, Obama described expanded access to higher education as essential for Americans and for America, and noted that at a time when the importance of college has never been higher, the price of attending college has risen higher than ever before.

"This trend -- a trend where a quality higher education slips out of reach for ordinary Americans -- threatens the dream of opportunity that is America's promise to all its citizens. It threatens to widen the gap between the haves and the have-nots," he said. "And it threatens to undercut America's competitiveness -- because America cannot lead in the 21st century unless we have the best educated, most competitive workforce in the world."

The president recounted various steps the administration has taken so far to address college access, but said that much more remains to be done -- and that his budget plan to kill the guaranteed loan program and use the savings to create a mandatory Pell Grant is the best route to achieving it.

"[U]nder the FFEL program, taxpayers are paying banks a premium to act as middlemen -- a premium that costs the American people billions of dollars each year. Well, that's a premium we cannot afford -- not when we could be reinvesting that same money in our students, in our economy, and in our country. ... [T]he money we could save by cutting out the middleman would pay for 95 percent of our plan to guarantee growing Pell Grants. This would help ensure that every American, everywhere in this country, can out-compete any worker, anywhere in the world."

Lenders have come out of the woodwork, Obama said Friday, to "keep things the way they are. They are gearing up for battle. So am I. They will fight for their special interests. I will fight for ... American students and their families. And for those who care about America's future, this is a battle we can't afford to lose."

(Student loan groups responded to the president's statements by applauding his commitment to college access but questioning whether his tactics were the best for the country, or for students. "The president's plan, although touted as a means of promoting higher education, is not," Marcia Z. Sullivan, director of government relations for the Consumer Bankers Association, said in a prepared statement. "The plan does not reduce the cost of student loans for a single student. Students and parents need to know that under this proposal, the government's profits on student loans borrowed by middle income students will be used to finance other student aid." And see the related essay published today in Inside Higher Ed.)

While Obama portrayed the administration's loan/Pell proposal as a partial solution to the country's college access problems, he made clear that it will be up to colleges and state leaders to address the root cause of those problems: rapidly rising tuitions.

"[W]hile our nation has a responsibility to make college more affordable, colleges and universities have a responsibility to control spiraling costs," the president said. "And that will require hard choices about where to save and where to spend. So I challenge state, college and university leaders to put affordability front and center as they chart a path forward. I challenge them to follow the example of the University of Maryland, where they're streamlining administrative costs, cutting energy costs, using faculty more effectively, making it possible for them to freeze tuition for students and for families."


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